The editors of the Washington Post have proposed a plan for salvaging Social Security:
A plausible plan would involve these elements: broadening the base upon which the 12.4 percent payroll tax is levied — currently 84 percent of all earnings — to the 90 percent that prevailed in 1982, at the time of the Reagan reforms; gradually indexing up the age, currently 67, at which people may retire at full benefits, to take account of longer retirements due to rising life expectancy; and shoring up the program’s distributional equity, via tweaking benefit formulas to trim how much high-income households get and increases for the most vulnerable. The latter category would include a minimum benefit equal to 125 percent of the official poverty line as well as a “bump up” in payments to the very aged. And all new state and local employees should be required to pay Social Security tax — and receive the benefits — though existing opt-outs for the small minority of state and local government workers who chose not to participate in Social Security should not be altered.
This package, illustrated in the accompanying table, would not quite eliminate the trust fund’s projected shortfall. It would close 87 percent of it, however, according to projections provided by the Committee for a Responsible Federal Budget. That’s good progress, given the tough politics of the issue and the uncertainties surrounding long-range forecasts.
Closing the rest of the 75-year gap would require one more major step: changing the formula by which Social Security adjusts benefits for inflation, to an arguably more accurate measure — known in wonkspeak as the “chained CPI.” The resulting benefit reduction relative to current policy would be real but manageable for most households, including less-affluent ones, if Congress adopted protections for them such as those we suggested. Yet the “chained CPI,” which a Democratic president, Barack Obama, supported as recently as 2013, can indeed be attacked as a cut to Social Security and has thus far proved politically impossible.
I actually approve of that plan—it’s not dissimilar to what I’ve suggested around here. However, we should acknowledge that it presents certain political problems beyond the one raised by tying benefit increases to chained CPI, the most important of which is that it violates one of President Biden’s most frequently-repeated pledges, not to increase taxes on people earning less than $400,000/year. Assuming that President Biden intends to run again, breaking that pledge may prove increasingly hazardous to him as 2024 approaches.
Yep, it’s all politics. There are lots of practical ways to close the funding gap, the only obstacles are political.
This proposal seems as good as any, but it is something that is likely to be the end result of negotiations in Congress? I’m skeptical.